The estate consequences of widowhood depend on a variety of factors. Someone who becomes a widow because their spouse dies, for example, will be entitled to certain property rights regardless of the contents of the spouse’s will. Additionally, remarriage after widowhood could entail negative tax consequences without careful estate planning.
Rights of a Surviving Spouse
When you spouse dies. You cannot be completely “cut out” of your spouse’s will regardless of the contents of your spouse’s will, or whether any valid will exists at all.Your property rights include:
At the risk of oversimplification, half of all marital property, as you would have received if your marriage had been termination by divorce rather than death;
The spouse’s elective share — 30 percent of the elective estate, which can be much larger than the probate estate (you can reject this a,ount in favor of a greater distribution under your deceased spouse’s will or under intestate succession law if your spouse died without a valid will);
A family allowance, which allows you to meet your day-to-day financial needs before probate is finalized; and
Exempt property such as household furniture and appliances.
Remember, all of these property rights are additive except the spouse’s elective share, which is an alternative. Remember also that a valid prenuptial agreement can nullify these rights.
Widow/Widowers Who Remarry: The Tax Trap
If your spouse dies, and you later remarry, serious tax consequences can ensue without careful preparation, at least if you are wealthy. Imagine this scenario:
Your spouse dies and you inherit several million dollars. This will not trigger estate tax, since your spouse can give you an unlimited amount of money and property without triggering IRS estate tax.
Suppose further that your spouse also gave a million dollars worth of property, in inheritance and lifetime gifts, to your children. Any cumulative gift exceeding $5 million triggers estate tax, and any gift at all gets subtracted from the $5 million estate tax exemption, reducing the amount that can be given in the future without triggering estate tax. This would mean that your spouse’s remaining estate tax exemption was $4 million.
You later learn that your deceased spouse’s remaining $4 million exemption can be added to your own $5 million exemption (assuming you haven’t used any of it yet) so that you can give away $9 million to your children tax-free when you die. You are overjoyed because this will save your children a lot of money someday.
You remarry a new spouse whose remaining estate tax exemption is only $500,00.
Your second spouse dies.
You die, and you leave $9 million to your children, an amount carefully crafted to maximize the gift while avoiding estate tax. Now is when the nasty surprise comes to your children.
Because you second husband died, the $4 million estate tax exemption your received from your first spouse lapsed and was replaced by the $500,000 estate tax exemption left behind by your second spouse. This left you with a total estate tax exemption of only $5.5 million instead of the expected $9 million, and your estate must pay estate tax on the remaining $3.5 million (leaving much less for your children to inherit).
There are several ways of dealing with this potential problem, one of which is to address the issue in a prenuptial agreement.
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